Supreme Court Refers NN Global Case to Determine the Enforceability of Arbitration Clauses in Unstamped Agreements


LI Network

Published on: 27 September 2023 at 13:11 IST

The Supreme Court has decided to refer the crucial issue of whether unstamped or insufficiently stamped arbitration agreements are enforceable.

This decision was made during the hearing of a curative petition challenging the Supreme Court’s 2020 ruling, which held that arbitration clauses insufficiently stamped agreements cannot be enforced by the court. The five-judge bench, led by Chief Justice of India DY Chandrachud, took this step in response to the curative petition and the 2020 ruling’s implications.

The curative petition raised concerns about the validity of the judgment delivered by a five-judge bench earlier in 2023 in the case of M/s. N.N. Global Mercantile Pvt. Ltd. v. M/s. Indo Unique Flame Ltd. And Ors.

In the NN Global case, a bench comprising Justice K.M. Joseph, Justice Ajay Rastogi, Justice Aniruddha Bose, Justice Hrishikesh Roy, and Justice C.T. Ravikumar had addressed the issue by a majority of 3:2. The majority opinion held that an unstamped instrument could not be considered a legally enforceable contract under Section 2(h) of the Contract Act.

During the recent proceedings, the bench acknowledged that this was a matter of great significance and had led to significant uncertainty in arbitration law, particularly concerning older agreements that were now being challenged due to insufficient stamping. As a result, the bench concluded that a larger bench of seven judges should consider the matter. The bench stated:

“Having regard to the larger ramifications and the view of the majority in NN Global, we are of the considered view that the proceedings should be placed before a seven-judge bench. The proceedings shall be listed for hearing on 11 October 2023.”

Mr. Debesh Panda and Ms. Pritha Srikumar were appointed as the nodal counsels in this case, and all relevant documents were ordered to be submitted by October 6, 2023. The seven-judge bench is scheduled to hear the case on October 11, 2023.

Senior Advocate Arvind Datar, representing the petitioner challenging the 2020 ruling, argued that courts should not delve into the validity of arbitration agreements. Conversely, Senior Advocate Shyam Divan, representing the respondent, argued that the case pertained to a 1997 agreement, and nothing substantive remained to be addressed. Divan further urged the bench not to reopen factual issues and not to consider the legal issue in the present reference.

Chief Justice DY Chandrachud assured Divan that the bench would hear his arguments on the matter’s maintainability at a later stage before the seven-judge bench. He emphasized the importance of addressing the correctness of the judgment in NN Global, stating that it was a matter of great significance and that the hearing would not be delayed.

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